STICERD Industrial Organisation Seminars
Product Variety and Store Density: A General Equilibrium Model of Retailing
Bart Bronnenberg (Tilburg University)
Monday 12 October 2015 12:30 - 14:00
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About this event
Retailing constitutes a very large sector, measuring about 20% of a country’s gross domestic product on average. This holds true across nations regardless of differences in income, size, development, and (proxies for) entry cost and consumer travel cost. This paper seeks to shed some light on the existence of a large fixed-size retail sector, proposing a free-entry theory of retailing and manufacturing. Consumers love variety and live on a circle. Manufacturers produce a single variety, set wholesale price, and enter when profitable. Retailers choose how much variety to stock, set final price, and enter when profitable. The market produces too little variety without a retail sector. At consensus estimates of the demand for variety from the literature on trade, the general equilibrium of the model mimics the empirical regularities in the first two sentences. Studying the interaction between the two sectors, the division of gross channel profits between retailers and manufacturers depends critically on the optimal retail assortment size relative to manufacturing entry. This traces the origins of some forms of vertical power back to technology and cost primitives. Mechanisms to coordinate distribution and production are discussed.
Industrial Organisation seminars are held on Mondays in term time at 12:30-14:00, ONLINE, unless specified otherwise.
Seminar organiser: Alessandro Gavazza.
For further information please contact Lubala Chibwe, either by email: email@example.com.
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